Question ID: 1498
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 50
Status: Final
Date of submission: 24 Apr 2018
Question
With regards to the operational solution for the Danish market of covered bonds based on the Nykredit Realkreditindeks.
Could you please confirm the duration you are applying in the VA calculation. The aforementioned document specifies that the maturity used for YdkkRFR shall correspond to the duration of the index (7 years) a figure which has been static in historical publications of the Technical Documentation. Furthermore according to Bloomberg ticker NYKDURA the duration of the index is 4.81 as of 2.1.2018 and has been in a range between 1 and 7 years since 2000.
Also, I have noticed that the Speficics RFR for this index which you currently report as 1.08% has been unchanged in every reporting period since the figures were first published in Dec 2015.
As a result of the above two points, when using the index's reported duration for calculating the Index's spread to DKK RFR historically gives a LTAS which is significantly different to the 1.08% reported by EIOPA.
EIOPA answer
We can confirm that with regard to the yields of the Nykredit index the volatility adjustment for the Danish krone is calculated with a duration of 7 years. Your observation about the published long-term average spread for the Nykredit index is correct; the published value was not updated in the past and remained fixed 1.08%. This was changed in the meantime. For example, the long-term average spread that was published today is at 1.14%.
Please note that we are currently reviewing the calculation of the volatility adjustment for the Danish krone (see https://eiopa.europa.eu/Pages/News/Application-of-the-updated-representative-portfolios-in-2018.aspx). The review will also reconsider the durations used in the calculation.